ESG Needs To Be Core To Business As Usual

ESG Needs To Be Core To Business As Usual

Under the old Friedman dictum that a company’s only responsibility is to make a return for shareholders, it would be rational for the only political engagement expected of leaders to be that which would enhance the business. That is no longer the case, however, and research from ESMT highlights how we want leaders to be politically and socially engaged.

The researchers surveyed 40 leaders of large companies from across Europe. An overwhelming 77.5% of them said that leaders should be taking a stand on political issues, with 62.5% of them saying they are willing to express themselves in sociopolitical terms. The primary motivation for this was to make a positive contribution to society, but there was also a strong belief that speaking up helped to express corporate values.

“ESG is following something of a similar pattern to diversity, which in the beginning was largely virtue signaling to make it look like organizations really cared,” Columbia University’s Tomas Chamorro-Premuzic says. “But then people quickly realized that this is fluff, especially with more information being made available on sites like Glassdoor, and so this has created a real external incentive to be more ethical.”

Values-based leadership

The scale of the change was emphasized by the recent Business Values ​​Survey conducted by the University of Oxford, which showed values ​​such as empathy, passion, and courage were to the fore. The researchers highlight how clear values ​​help to guide organizations through the kind of challenging circumstances most face across the world today.

As researchers from Washington University in St. Louis demonstrates, alignment between our own values ​​and those of our employer is a deal breaker in terms of attracting and retaining talent, with employees seeing no distinction between an organization’s ability to make good business and good social decisions.

“There is a tendency to look at sustainability as a cost driver or reporting obligations, but the reality is that sustainability presents an enormous opportunity for business and economic growth,” Julie Linn Teigland, EY EMEIA Area Managing Partner explains. “Creating the talent pool that’s required for transformation is essential for long-term value creation.”

While this sense of a moral duty to respond to the various problems the world faces is evident, there remains a sense that few have truly taken to survival heart the fact that their very depends on how effective they are at doing this. It’s evident that corporate success requires a healthy natural environment, an educated workforce, peaceful coexistence between nations, and consumers with money to spend.

Spirit of cooperation

In other words, there is no future for companies if the earth itself has no future. This fundamental truth underpins Canon’s culture of kyosei, which can best be described as a spirit of cooperation whereby we all work together for a common good. It aims to produce harmful and long-term relationships with customers, suppliers, governments, the natural environment, and even competitors.

“It’s easy to build a CSR program where you invest a bit of money on the side and then carry on as normal with the rest of your business, but we realized that to really support society you can’t just give money,” says Yuichi Ishizuka, President & CEO in Canon EMEA. “To do this in a sustainable way it has to be something that runs through everything that we do, whether that’s treating employees well, suppliers, the environment, and the wider community, it has to be a fundamental part of business as usual.”

The kyosei process can be thought of as a pyramid, with the strength of each layer dependent on the layers preceding it. The bottom layer is one of economic survival, as the organization has to be in good financial health in order to do good for society.

Local partnerships

This then underpins long-term and sustainable relationships with employees within the company and other stakeholders outside the company. Throughout there is a strong desire to treat people respectfully, and through this engender a reciprocal sense of loyalty.

“This was evident during the pandemic when lockdown started, as we had a lot of really strong business partners and we worked hard with them to try and ensure they were as supported as possible,” Ishizuka continues. “This might be through extending payment times or many other areas, but the key is to think long-term and view these partners as a key part of the business.”

This extends to being active participants in each of the regions in which they operate. Research from INSEAD illustrates the benefits of this clearly, as it shows that when companies operate via local partners, they are prevented from building relationships with local stakeholders and building a robust reputation in the community.

This is important, as many multinationals utilize local partners to manage their relationship with the host government, built goodwill with local people, and provide training and other benefits.

global reach

The global nature of the firm allows it to be an activist on the international stage as it not only operates in over 220 countries and regions but cooperates with companies and governments when doing so.

This global reach allows the company to address various imbalances they encounter. For instance, income imbalances can be addressed by establishing manufacturing facilities in developing countries, environmental imbalances can be addressed by finding new ways to reduce air and water pollution or reducing energy consumption.

While many companies continue to view CSR, ESG, and so on as external to their core business, there are signs that this is changing. In his recent book Purpose and Profit: How Business Can Lift Up The WorldHarvard Business School’s George Serafeim explains how a new generation of leaders is adamant that this is not something that is nice to have.

He outlines a number of core ways companies can pursue “purpose plus profit”, including:

  1. Create a new model or market. When you truly embrace social responsibility you can often create new markets, such as the various neobanks that have incorporated sustainability from day 1.
  2. Transform the business. If you’re an existing business, it’s not too late to turn things around, however, as the Danish energy company Ørsted did when it rebranded from DONG when it focused on wind power and renewable energy.
  3. Focus on operational efficiencies. For instance, chemical giant Dow has been focusing its efforts on environmentally friendly construction and industrial safety.
  4. Recognize an added value. The utility company NextEra Energy—originally Florida Power and Light—has focused on renewable energy production, while the utility AES has moved into development solar and battery storage.

It’s evident that more companies appreciate the importance of the wider world is placing on them being good corporate citizens, but too often they have resorted to lip service in response. Being truly impactful is by no means easy, especially during challenging times. It’s only by truly embedding this into the very being of the organization that the best results will be achieved.

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